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Wheat Market Update - Wednesday 17th March 2010
UK and Europe Harvest Overview
A lack of fresh news offers little inspiration to London feed wheat futures at present with values drifting within a given range. Ample availability and large carryover stocks continue to weigh heavily on the market whilst the window of opportunity for a weather event to disrupt crop progress keeps diminishing. Daily trade fluctuates on outside market influences but values appear to gravitate back towards current levels. Currency continues to attract attention and a further weakening of Sterling is still possible amid a worsening budget deficit.
Physical markets remain thin as consumers choose to sit on the sidelines and suppliers hold out for higher prices. Farmers are reluctant to release bread wheat below £100 on farm but are encouraged to sell into any upside rallies. This is offering some support in the spot market with those short of wheat having to pay bigger premiums to entice physical wheat onto the market. Meanwhile, new crop bread making premiums have firmed recently as suppliers look to reduce their risk and build in extra weather protection. There now appears to be little downside price movement in bread making premiums pre-harvest.
The latest planting figures from Defra reflect a 12% increase in UK wheat plantings now forecast at 2Mha. This equates to approximately 16.3Mt, against 14.4Mt last year with the increase in area mainly attributed to a decrease in barley plantings.
US/World Overview
U.S. export trade data continues to disappoint with prices still uncompetitive against Black Sea and European values. Supplies are now at a 22 year high and this will limit any upside movement in the short term. The latest USDA report showing higher wheat stocks was largely expected and subsequently ignored by global markets. Traders are desperately searching for a bullish story with the latest reports on flooding in the northern U.S. Plains likely to be hyped up more than normally would be the case.
Summary
Everyone is searching for a bullish story at present and there doesn’t seem to be one out there. Fundamentals continue to weigh on values which will limit any upside movement in the short term. Currency will continue to have an impact on daily trade and the potential for a further weakening of Sterling could support London feed wheat futures. Otherwise, upside movement in the near term is limited although a weather scare in the run up to harvest could still offer an opportunity for a bull run.
Wheat Market Update - Thursday 4th March 2010
UK and Europe Harvest Overview
Large carryover stocks and favourable new crop planting figures are still weighing heavily on London futures markets. However, volatility remains and external markets continue to influence values on a daily basis. Currency is the main driver at present with the pound depreciating rapidly earlier in the week on fears that the UK will have a hung parliament in the forthcoming election. This offered support to London wheat values and will continue to have a strong influence in the run up to the general election.
Old and new crop bread making wheat premiums have narrowed slightly across the country but physical trade remains thin. Farmers continue their reluctance to sell at these lower prices and have chosen to sit on stock until there is a bounce in the market or they are forced to sell towards the end of the harvest year. A widening spread between May-10 and Nov-10 futures contracts could start to incentivise the carry of old crop into the new harvest year.
In other news, there was little surprise in Defra’s latest England planting area estimate, released on 2nd March 2010. They forecast a total wheat area of 1.8Mha, an increase of over 10% from the previous year. The UK area estimate is published next week and this figure should be approximately 2Mha.
US/World Overview
A severe lack of fresh fundamental news, large carryover stocks and poor export competitiveness continue to offer little support to U.S. wheat markets. Short covering by funds and the expectation that there would be a fresh round of money inflow excited the market earlier in the week but this was short lived. There is little incentive for markets to trade higher on fundamentals alone at the present but technical analysis indicates markets are nearing the bottom in oversold territory. Higher ethanol production figures could be viewed as encouraging but this is unlikely to impact prices anytime soon. The next real price driver will come on 10th March when the USDA release revised world supply and demand estimates.
Weather conditions across the Northern Hemisphere are going to be closely scrutinised in the run up to harvest in the hope that this will provide price direction. There is ample wheat availability across the world but a negative weather event could still impact values and push markets higher.
Summary
External markets will continue to influence daily wheat values over the coming weeks and months. Weather and planting prospects will be the main drivers on the fundamental side and negative reports could offer some support to global wheat prices. However, any upside movement is likely to be limited due to the increasingly large overhang of wheat on the market. U.S. and European season exports will finish lower and this will provide a buffer for such negative events. Markets are likely to drift until something dramatically changes on the fundamental side. One factor is for sure, volatility will continue to be fuelled by external markets and fund money flow in daily trade.
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